Evaluating the Long-Term Investment Opportunities of Wave Energy Conversion with Real Options

James A. Dilellio; John C. Butler; Igor Rizaev; Wanan Sheng; George Aggidis

Evaluating the Long-Term Investment Opportunities of Wave Energy Conversion with Real Options

James A. Dilellio
, John C. Butler
, Igor Rizaev
, Wanan Sheng
, George Aggidis

Pepperdine University
University of Texas at Austin
University of Hull
South East Technological University
Lancaster University

Research output: Chapter in Book/Report/Conference proceeding › Conference proceedings published in a book › peer-review

Abstract

Wave energy conversion (WEC) remains a viable option for renewable energy production, but levelized cost of electricity (LCOE) estimates remain higher than other energy alternatives. We conduct an investment analysis that includes the market value of electricity and show that a negative Net Present Value (NPV) project is the likely result. However, we also show that such a project may have sufficient option value for the expected NPV to turn positive. This change in investment decision is supported by applying the theory of real options to model the uncertainty of future electricity prices and a project’s optimal decisions. Our analysis demonstrates that this investment is like a financial out-of-themoney call option. The results of this research support government decisions on the need for additional investment and/or incentives, or the possibility of public-private partnerships. These financial models support long-term planning and investment decisions for large scale development and deployment of in WEC systems in the coming years.

Original language	English
Title of host publication	Proceedings of the 34th International Ocean and Polar Engineering Conference, 2024
Publisher	International Society of Offshore and Polar Engineers
Pages	656-663
Number of pages	8
ISBN (Print)	9781880653784
Publication status	Published - 2024
Externally published	Yes
Event	34th International Ocean and Polar Engineering Conference, ISOPE 2024 - Rhodes, Greece Duration: 16 Jun 2024 → 21 Jun 2024

Publication series

Name	Proceedings of the International Offshore and Polar Engineering Conference
Volume	1
ISSN (Print)	1098-6189
ISSN (Electronic)	1555-1792

Conference

Conference	34th International Ocean and Polar Engineering Conference, ISOPE 2024
Country/Territory	Greece
City	Rhodes
Period	16/06/24 → 21/06/24

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 7 Affordable and Clean Energy
SDG 17 Partnerships for the Goals

ASJC Scopus subject areas

Energy Engineering and Power Technology
Ocean Engineering
Mechanical Engineering

Keywords

clean energy
real options
stochastic processes
technology readiness levels

Cite this

Dilellio, J. A., Butler, J. C., Rizaev, I., Sheng, W., & Aggidis, G. (2024). Evaluating the Long-Term Investment Opportunities of Wave Energy Conversion with Real Options. In Proceedings of the 34th International Ocean and Polar Engineering Conference, 2024 (pp. 656-663). (Proceedings of the International Offshore and Polar Engineering Conference; Vol. 1). International Society of Offshore and Polar Engineers.

Dilellio, James A. ; Butler, John C. ; Rizaev, Igor et al. / Evaluating the Long-Term Investment Opportunities of Wave Energy Conversion with Real Options. Proceedings of the 34th International Ocean and Polar Engineering Conference, 2024. International Society of Offshore and Polar Engineers, 2024. pp. 656-663 (Proceedings of the International Offshore and Polar Engineering Conference).

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title = "Evaluating the Long-Term Investment Opportunities of Wave Energy Conversion with Real Options",

abstract = "Wave energy conversion (WEC) remains a viable option for renewable energy production, but levelized cost of electricity (LCOE) estimates remain higher than other energy alternatives. We conduct an investment analysis that includes the market value of electricity and show that a negative Net Present Value (NPV) project is the likely result. However, we also show that such a project may have sufficient option value for the expected NPV to turn positive. This change in investment decision is supported by applying the theory of real options to model the uncertainty of future electricity prices and a project{\textquoteright}s optimal decisions. Our analysis demonstrates that this investment is like a financial out-of-themoney call option. The results of this research support government decisions on the need for additional investment and/or incentives, or the possibility of public-private partnerships. These financial models support long-term planning and investment decisions for large scale development and deployment of in WEC systems in the coming years.",

keywords = "clean energy, real options, stochastic processes, technology readiness levels",

author = "Dilellio, \{James A.\} and Butler, \{John C.\} and Igor Rizaev and Wanan Sheng and George Aggidis",

note = "Publisher Copyright: {\textcopyright} 2024 by the International Society of Offshore and Polar Engineers (ISOPE).; 34th International Ocean and Polar Engineering Conference, ISOPE 2024 ; Conference date: 16-06-2024 Through 21-06-2024",

year = "2024",

language = "English",

isbn = "9781880653784",

series = "Proceedings of the International Offshore and Polar Engineering Conference",

publisher = "International Society of Offshore and Polar Engineers",

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address = "United States",

}

Dilellio, JA, Butler, JC, Rizaev, I, Sheng, W & Aggidis, G 2024, Evaluating the Long-Term Investment Opportunities of Wave Energy Conversion with Real Options. in Proceedings of the 34th International Ocean and Polar Engineering Conference, 2024. Proceedings of the International Offshore and Polar Engineering Conference, vol. 1, International Society of Offshore and Polar Engineers, pp. 656-663, 34th International Ocean and Polar Engineering Conference, ISOPE 2024, Rhodes, Greece, 16/06/24.

Evaluating the Long-Term Investment Opportunities of Wave Energy Conversion with Real Options. / Dilellio, James A.; Butler, John C.; Rizaev, Igor et al.
Proceedings of the 34th International Ocean and Polar Engineering Conference, 2024. International Society of Offshore and Polar Engineers, 2024. p. 656-663 (Proceedings of the International Offshore and Polar Engineering Conference; Vol. 1).

Research output: Chapter in Book/Report/Conference proceeding › Conference proceedings published in a book › peer-review

TY - GEN

T1 - Evaluating the Long-Term Investment Opportunities of Wave Energy Conversion with Real Options

AU - Dilellio, James A.

AU - Butler, John C.

AU - Rizaev, Igor

AU - Sheng, Wanan

AU - Aggidis, George

PY - 2024

Y1 - 2024

N2 - Wave energy conversion (WEC) remains a viable option for renewable energy production, but levelized cost of electricity (LCOE) estimates remain higher than other energy alternatives. We conduct an investment analysis that includes the market value of electricity and show that a negative Net Present Value (NPV) project is the likely result. However, we also show that such a project may have sufficient option value for the expected NPV to turn positive. This change in investment decision is supported by applying the theory of real options to model the uncertainty of future electricity prices and a project’s optimal decisions. Our analysis demonstrates that this investment is like a financial out-of-themoney call option. The results of this research support government decisions on the need for additional investment and/or incentives, or the possibility of public-private partnerships. These financial models support long-term planning and investment decisions for large scale development and deployment of in WEC systems in the coming years.

AB - Wave energy conversion (WEC) remains a viable option for renewable energy production, but levelized cost of electricity (LCOE) estimates remain higher than other energy alternatives. We conduct an investment analysis that includes the market value of electricity and show that a negative Net Present Value (NPV) project is the likely result. However, we also show that such a project may have sufficient option value for the expected NPV to turn positive. This change in investment decision is supported by applying the theory of real options to model the uncertainty of future electricity prices and a project’s optimal decisions. Our analysis demonstrates that this investment is like a financial out-of-themoney call option. The results of this research support government decisions on the need for additional investment and/or incentives, or the possibility of public-private partnerships. These financial models support long-term planning and investment decisions for large scale development and deployment of in WEC systems in the coming years.

KW - clean energy

KW - real options

KW - stochastic processes

KW - technology readiness levels

UR - https://www.scopus.com/pages/publications/85200733415

M3 - Conference proceedings published in a book

AN - SCOPUS:85200733415

SN - 9781880653784

T3 - Proceedings of the International Offshore and Polar Engineering Conference

SP - 656

EP - 663

BT - Proceedings of the 34th International Ocean and Polar Engineering Conference, 2024

PB - International Society of Offshore and Polar Engineers

T2 - 34th International Ocean and Polar Engineering Conference, ISOPE 2024

Y2 - 16 June 2024 through 21 June 2024

ER -

Dilellio JA, Butler JC, Rizaev I, Sheng W, Aggidis G. Evaluating the Long-Term Investment Opportunities of Wave Energy Conversion with Real Options. In Proceedings of the 34th International Ocean and Polar Engineering Conference, 2024. International Society of Offshore and Polar Engineers. 2024. p. 656-663. (Proceedings of the International Offshore and Polar Engineering Conference).

Evaluating the Long-Term Investment Opportunities of Wave Energy Conversion with Real Options

Abstract

Publication series

Conference

UN SDGs

ASJC Scopus subject areas

Keywords

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